Maybe the U.S. base oil market has gone so long without a price change that observers are having difficulty foreseeing one. Whatever the reason, there are a variety of opinions about whether prices might change soon and which direction they might be headed.
More than four months have passed since the last change in paraffinic postings – a round of increases straddling the end of February and early March.
It seems like forever compared to how volatile the market has been the past couple years, one marketer said. If you go back farther, it wouldnt be so unusual. There was a time when prices wouldnt change but three or four times a year. But these days were in the habit of seeing much more movement.
Usually one can find a good deal of consensus about whether the market is ripe for price changes and especially which direction prices are leaning. Not so the past few weeks. Some observers see prices dropping. They note that crude oil costs appear to have settled around $30 per barrel – nearly 20 percent below their level at the time of the last price change. They also point out that all major refineries are now operating normally, after a long series of planned and unplanned disruptions during the first half of the year.
We see production getting back to normal and that should loosen up the market, one base oil buyer said. With margins as high as they are, I would expect to see prices coming down, and I think it will happen [this month].
Others think it more likely that base oil prices will drop. They cite a variety of factors. Market leader ExxonMobil has been among those experiencing disruptions and appears still to be snug at least in some grades. There appears to be little threat of arbitrage from European imports to push U.S. prices down. And the market still must absorb Shells closure of its Martinez, Calif., base oil plant, which is scheduled for Sept. 1. The plant produces only naphthenic base oils, but sources predict the shrinking of naphthenic supply will spur some blenders to shift from naphthenic to paraffinc stocks.
When crude got down to $25 per barrel [during the spring], I thought we might see [base oil] prices fall, a buyer said. But now that its crept back up, I think we may see an increase.
The price of crude on the New York Mercantile Exchange closed at $30.10 per barrel yesterday, 36 cents lower than a week earlier.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.